With regard to international expansion, the company’s objectives involve three important questions:
- Why go international? The answer will determine the strategic approach
- What profits do we expect over what timescale and with what risk?
- What commitment is needed and will be given by the top management team?
Why go international? There are at least four reasons:
- Desire to acquire overseas resources such as minerals or oil that are not available in the home country
- Need to generate growth beyond the home market
- Seeking greater cost reduction and efficiency from areas such as economies of scale and scope
- Searching for strategic assets, such as attractive takeover targets, to deliver market share and branding
In addition to the above (which come from the late Professor John Dunning), there are at least two more reasons that come from more recent experience:
- Fierce competition in the home market, making overseas expansion more attractive
- World wide web availability, making it easier and cheaper to sell across the world.
What profitability, over what timescale and with what risk?
In early 2010, Ryanair – the European budget airline – announced that it had made a loss of 10.9 million Euros (US$ 15.3 million) during the period October to December 2009. However, it was also the fastest growing airline in Europe. Moreover, it was still anticipating making a net profit of 275 million Euros for the full year based mainly on its highly profitable Summer business activity.
By year 2021, Ryanair’s was so successful that it had become Europe’s leading airline. You can read the full case in Chapter 3 of Lynch Strategic Management.
From an international strategy perspective, Ryanair in its early years was quite prepared to accept a short-term loss as it continued to build market share – a classic example of careful consideration of profit objectives in relation to time-scale.
- Each organisation will have its own measures, e.g. profitability, market share, earnings per share, the time period over each will be delivered
- Important to clarify these at an early stage to select opportunities
- Note that international development is probably more risky than developing at home because there are greater unknowns – lack of knowledge of overseas market, political risks, etc. This means that it may be better to set higher, more demanding objectives than for the home market
- It’s quite complex to balance the various considerations – see Lynch ‘Polygon of Purpose’ in Chapter 6 of Lynch Strategic Management.
What commitment from top management?
- Plenty of research to show that this is essential for successful international expansion
- Means that the Chief Executive must be convinced and actively support international initiatives
- Note the importance of the pressures on individual leaders in managing an international or global operation – the need to visit worldwide locations puts pressure on personal life, for example
- Also important to consider the personal human resource characteristics of the individual leader or senior manager – more likely to be successful if she or he is open, flexible and able to work with groups from many different cultures.
Conclusion
It’s essential to identify why the organisation wishes to go international or global, over what timescale and with what resources.